United States Court of Appeals
For the First Circuit
No. 09-1089
SONORAN SCANNERS, INC.;
JOSEPH P. DONAHUE,
Plaintiffs, Appellants,
v.
PERKINELMER, INC.,
Defendant, Appellee.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. William G. Young, U.S. District Judge]
Before
Torruella, Boudin, and Dyk,*
Circuit Judges.
Edward T. Dangel, III, with whom Dangel & Mattchen, LLP,
was on the brief, for appellants.
Jonathan Isaac Handler, with whom Jillian B. Hirsch and
Day Pitney, LLP, was on the brief, for appellee.
October 29, 2009
*
Of the Federal Circuit, sitting by designation.
DYK, Circuit Judge. Plaintiffs Joseph P. Donahue
(“Donahue”) and Sonoran Scanners, Inc. (“Sonoran”) appeal from an
order of the United States District Court for the District of
Massachusetts granting summary judgment to defendant PerkinElmer,
Inc. (“PerkinElmer”) on claims for breach of contract and violation
of Massachusetts General Laws Chapter 93A, Mass. Gen. Laws ch. 93A
§ 11. These claims arise from an Asset Purchase Agreement
(“Purchase Agreement”) in which PerkinElmer acquired Sonoran’s
computer-to-plate printing technology business (“CTP Business”) and
an employment agreement (“Employment Agreement”) under which
Donahue (the founder of Sonoran) agreed to serve as “Site Leader
and General Manager” of the CTP Business for PerkinElmer. Sonoran
Scanners, Inc. v. PerkinElmer, Inc., 590 F. Supp. 2d 196 (D. Mass.
2008).
We agree that the district court correctly granted
summary judgment to PerkinElmer with respect to most of the claims.
However, we conclude that under Massachusetts law the Purchase
Agreement contains an implied contractual term that required
PerkinElmer to use reasonable efforts to develop and promote
Sonoran’s technology. Accordingly, in this one respect, we reverse
the district court’s grant of summary judgment and remand for
further proceedings. In all other respects, we affirm.
-2-
I.
Because this appeal is from a grant of summary judgment,
we view the record in the light most favorable to the non-moving
parties (here Sonoran and Donahue). Morelli v. Webster, 552 F.3d
12, 15 (1st Cir. 2009).
Sonoran is an Arizona corporation founded in 1997 by
Donahue, an engineer and businessman, to develop and market high-
speed computer-to-plate (“CTP”) technology to the newspaper and
graphic arts industries. The CTP technology developed by Sonoran
was intended to be a high-speed digital printing alternative,
superior to the costly and time-consuming analog process required
by conventional plate technology. Sonoran’s CTP technology
required a greater initial capital investment from customers than
conventional technology (approximately $500,000 per unit), but
potentially offered significant cost savings over the life of the
product. As of 2000, Sonoran had developed a prototype CTP
machine, but had not made any sales. Although there was interest
in Sonoran’s product, some customers expressed concern as to
whether the company was too small to assure long-term support for
the unproven technology. By mid-2000, Sonoran was running out of
cash despite Donahue’s investment of approximately $3.5 million of
his own money in the company. Facing these challenges, Sonoran
sought a purchaser to undertake the continued development and
marketing of its CTP technology.
-3-
PerkinElmer is a publicly-traded Massachusetts
corporation headquartered in Wellesley, Massachusetts. In late
2000, Donahue approached PerkinElmer to determine if PerkinElmer
was interested in purchasing Sonoran’s CTP Business. PerkinElmer
was amenable to Donahue’s overtures, and after negotiations, agreed
to purchase substantially all of Sonoran’s assets and business.
PerkinElmer and Sonoran executed an “Asset Purchase
Agreement” (“Purchase Agreement”) on May 2, 2001. Under § 1.4 of
the Purchase Agreement, at closing PerkinElmer paid $3.5 million.
Some significant portion of that amount went directly to Sonoran’s
unsecured creditors. In addition, §§ 1.6 and 6.2 of the Purchase
Agreement (entitled “Additional Earnout Payments”) provided that
PerkinElmer would pay Sonoran additional amounts if certain CTP
product sales targets were met each year between 2001 and 2006.
Under the terms of the earn-out provisions, PerkinElmer would pay
Sonoran $750,000 if at least three CTP machines were sold in the
first year following closing, $1.5 million (less any previously
paid earn-out amounts) if at least ten machines were sold by the
end of the second year, and additional amounts if certain gross
margin targets on sales of CTP machines were met. The additional
earnout payment (over and above the $1.5 million) during the five
year payout period was a maximum of $2 million.
Also relevant to this dispute are § 6.1 and § 6.3 of the
Purchase Agreement. Section 6.3, entitled “Sharing of Data,”
-4-
provided in part that “The Parties agree that from and after the
Closing Date they shall cooperate fully with each other to
facilitate the transfer of the Acquired Assets from the Seller to
the Buyer and the operation thereof by the Buyer.” Purchase
Agreement § 6.3(b) (emphasis added). Section 6.1 stated that “The
Buyer or a subsidiary of the Buyer shall offer employment to those
Employees identified on Schedule 6.1 attached hereto . . . .”
Schedule 6.1, in turn, listed eight Sonoran employees and stated
whether or not each had accepted an offer of employment from
PerkinElmer. The only employee on Schedule 6.1 who had not
accepted an employment offer before execution of the Purchase
Agreement was Norm Bogen, Sonoran’s chief of sales and marketing
and principal salesman.
PerkinElmer also entered into a separate employment
agreement (“Employment Agreement”) with Donahue, under which
Donahue was to serve as “Site Leader and General Manager” of the
CTP Business for PerkinElmer for a salary of $150,000 per year.
The Employment Agreement also specified that Donahue would be
eligible to receive, for five years, bonuses (limited in the
aggregate to $6.6 million) based on CTP sales and to be calculated
in a manner similar to the earn-out payments potentially payable to
Sonoran. The Annual Bonus Section of the Employment Agreement
stated that Donahue would “have the right to consult with
[PerkinElmer] regarding the pricing of [CTP] Product sales.”
-5-
Upon closing, Sonoran’s CTP Business (which remained
located in Tucson, Arizona) became part of PerkinElmer’s Azusa,
California-based Lithography Systems division (“Lithography”).
It is undisputed that the CTP Business, as operated by
PerkinElmer, was a failure. Between May 2001 and October 2004,
only one CTP unit was sold and no additional amounts were paid
under the provisions of the Purchase Agreement or Employment
Agreement to Sonoran or Donahue. According to Sonoran and Donahue,
the CTP Business’s failure to thrive was the avoidable result of a
series of unreasonable and bad faith decisions by PerkinElmer.
By 2004 PerkinElmer was pursuing an exit strategy for the
CTP Business. In September 2004 PerkinElmer sold its CTP assets to
MacDermid, Inc. In October 2004 PerkinElmer shuttered the CTP
Business and laid off the associated staff, including Donahue.
On November 20, 2006, Sonoran and Donahue sued
PerkinElmer in the United States District Court for the District of
Massachusetts basing jurisdiction on diversity of citizenship.
Insofar as is pertinent to this appeal, Sonoran and Donahue sued to
recover on four separate theories. First, Sonoran alleged that
PerkinElmer breached the express terms of the Purchase Agreement by
failing to “cooperate fully” with Sonoran and by failing to hire
Bogen in accordance with §§ 6.3 and 6.1 respectively of the
Purchase Agreement. Second, Sonoran and Donahue claimed that
PerkinElmer breached the implied covenant of good faith and fair
-6-
dealing in both the Purchase Agreement and the Employment Agreement
by engaging in bad faith conduct. Third, Sonoran claimed that
PerkinElmer breached the implied terms of the Purchase Agreement by
failing to make good faith and reasonably competent and diligent
efforts to develop, market, and sell Sonoran’s CTP products.
Finally, Sonoran contended that PerkinElmer violated Chapter 93A,
Mass. Gen. Laws ch. 93A § 11, by engaging in unfair or deceptive
conduct.1
Following discovery, the district court granted summary
judgment to PerkinElmer on all four claims. The court held that no
express term of the Purchase Agreement had been violated. With
regard to breach of the implied covenant of good faith and fair
dealing in both the Purchase and Employment Agreements, the court
held that “[t]he parallel economic interests of the parties compels
a conclusion that PerkinElmer did not intend to deny Plaintiffs the
fruits of the contract[s]” and thus that no breach could be shown.
Sonoran, 590 F. Supp. 2d at 211. The court added that “[e]ven were
this Court to find that PerkinElmer intended to deny the Plaintiffs
the benefit of the contractual earnouts, on the record before the
1
In the complaint, Donahue alleged additional theories
concerning breach of the Employment Agreement that are not
presented in this appeal. We note that Donahue signed the Purchase
Agreement as “Principal Stockholder.” That Agreement, however, was
silent as to any obligations running directly from PerkinElmer to
Donahue (though there are some obligations running from Donahue to
PerkinElmer). We assume that Donahue’s claims are limited to his
rights under the Employment Agreement.
-7-
Court, the Plaintiffs would have great difficulty establishing that
PerkinElmer’s conduct caused the injuries the Plaintiffs allege”
and that “they have not presented evidence sufficient to establish
their damages with the necessary certainty.” Id. The court
further found that the Purchase Agreement contained no implied
“obligation to continue operating the CTP Business” in the face of
millions of dollars of losses. Id. at 206. Finally, the court
held that Sonoran’s Chapter 93A claim must fail because the claim
relies exclusively on the same set of operative facts as the
Plaintiffs’ failed common law claims, and thus summary judgment was
appropriate on that claim as well. Id. at 212.
Sonoran and Donahue timely appealed from the judgment of
the district court dated December 23, 2008, and we have
jurisdiction under 28 U.S.C. § 1291.
II.
We review the district court’s grant of summary judgment
de novo, drawing all reasonable inferences in favor of the
nonmoving party. Fenton v. John Hancock Mut. Life Ins. Co., 400
F.3d 83, 87 (1st Cir. 2005).
A. Breach of the Express Terms of the Purchase Agreement
Sonoran first contends that PerkinElmer breached the
express terms of the Purchase Agreement, focusing on §§ 6.1 and
6.3 of the Agreement. The district court held that no reasonable
-8-
jury could conclude that PerkinElmer breached any express
provision, and we agree.
We begin with Sonoran’s contention that PerkinElmer
breached § 6.3(b) of the Purchase Agreement. That provision,
entitled “Sharing of Data,” provided in part that “The Parties
agree that from and after the Closing Date they shall cooperate
fully with each other to facilitate the transfer of the Acquired
Assets from the Seller to the Buyer and the operation thereof by
the Buyer.” Purchase Agreement § 6.3(b) (emphasis added).
Although Sonoran apparently contends that the “shall cooperate
fully” language of § 6.3(b) created a freestanding obligation on
the part of PerkinElmer to “cooperate” with Sonoran and Donahue in
operating the business, the unambiguous language of the provision
was to the contrary. See, e.g., Eigerman v. Putnam Invs., Inc.,
877 N.E. 2d 1258, 1263 (Mass. 2007) (courts interpret contracts
according to plain terms where these are unambiguous).
Specifically, § 6.3(b) stated that the duty of cooperation was
intended to benefit PerkinElmer——that the parties shall cooperate
to facilitate transfer of Sonoran’s business “to the Buyer” and to
facilitate “the operation thereof by the Buyer.” Purchase
Agreement § 6.3(b) (emphasis added). The district court correctly
held that no basis exists to conclude that PerkinElmer breached
§ 6.3 of the Purchase Agreement.
-9-
Equally unavailing is Sonoran’s argument that PerkinElmer
breached § 6.1 of the Purchase Agreement by failing to hire Bogen.
That provision stated that “The Buyer or a subsidiary of the Buyer
shall offer employment to those Employees identified on Schedule
6.1 attached hereto . . . .” Purchase Agreement § 6.1 (first
emphasis added). Sonoran maintains that the district court erred
by failing “to give any forward-looking meaning” to the phrase
“shall offer employment” such that PerkinElmer was required to make
a better offer to Bogen post-closing.
During negotiations with PerkinElmer before execution of
the Purchase Agreement, Donahue made clear to PerkinElmer that
Bogen would require a raise from his current salary of $100,000 a
year to $125,000 a year, as well as reimbursement for commuting
expenses and a fair commission, in order to remain with the
business. In April 2001 PerkinElmer made offers to the eight
Sonoran employees listed in Schedule 6.1 of the Purchase Agreement,
including Norm Bogen. PerkinElmer offered Bogen only his current
salary with no additional amount for expenses or commission. Bogen
rejected the offer. Upon learning of Bogen’s rejection, Donahue
asked Greg Baxter, the head of Lithography, to increase the offer.
Baxter represented that he would get a better offer for Bogen after
closing, though no such language was added to the Purchase
Agreement. PerkinElmer never made a better offer to Bogen, and
Bogen never accepted employment with PerkinElmer.
-10-
We agree with the district court that § 6.1 only required
PerkinElmer to make a bona fide offer of employment to Bogen; it
did not require PerkinElmer to make any particular offer to Bogen
or to make a second, better offer to Bogen after closing when the
first offer was rejected by Bogen.2 Schedule 6.1 of the Purchase
Agreement confirmed this interpretation of § 6.1. That schedule
listed eight Sonoran employees, including Bogen, and indicated that
each employee but Bogen had accepted PerkinElmer’s offer of
employment by the May 2, 2000, closing. This clearly indicated
that making an offer of employment before execution of the Purchase
Agreement complied with § 6.1. Under these circumstances, the
failure to make an offer of employment to Bogen after execution of
the Purchase Agreement could not be a violation of the Purchase
Agreement.
In sum, the district court correctly granted summary
judgment that PerkinElmer did not breach any express terms of the
Purchase Agreement.
2
Because the plain language of the provision is
unambiguous, Sonoran’s argument that certain parole evidence
(including pre-closing conversations in which Baxter represented
that Bogen would receive a better offer after closing) creates a
question of fact is without merit. The Purchase Agreement includes
an integration clause. See Bank v. Int’l Bus. Machs. Corp., 145
F.3d 420, 424 (1st Cir. 1998) (noting that under Massachusetts law,
an integrated contract, “if unambiguous, cannot be modified by
evidence of earlier or contemporaneous discussions”).
-11-
B. Breach of the Implied Covenant of Good Faith and Fair
Dealing
Sonoran and Donahue further contend that PerkinElmer
breached the implied covenant of good faith and fair dealing in
both the Purchase Agreement and the Employment Agreement by
engaging in bad faith conduct, including misrepresenting its
intention to give Bogen a better offer and failing to disclose the
Lithography Division’s true financial condition. The district
court rejected this claim on the ground that there was no evidence
that could support a finding that PerkinElmer intended to deprive
Sonoran or Donahue of the fruits of the contracts.
The parties devoted much of their briefing for this claim
to the issue of whether specific intent is a necessary element of
the implied covenant of good faith and fair dealing. Indeed,
Massachusetts law is unclear whether specific intent is required
for this claim.3 But it is not necessary to resolve the specific
3
Compare, e.g., Birbiglia v. St. Vincent Hosp., Inc., 692
N.E.2d 9, 14 n.5 (Mass. 1998) (suggesting in a footnote that
specific intent would be required to establish a violation of any
duty of good faith and fair dealing), and Towner v. Bennington
Const. Co., No. 0033B, 2005 WL 3105653 at *11 n.6 (Mass. Super. Ct.
Oct. 12, 2005) (unreported) (reading Birbiglia as stating that a
“plaintiff must show ‘specific intent’ to violate duty of good
faith and fair dealing,” meaning intent “to deprive [plaintiff] of
the fruits of the contract”), with Philip Alan, Inc. v. Sarcia, No.
0500437, 2007 WL 738484 at *10 (Mass. Super. Ct. Feb. 6, 2007)
(unreported) (rejecting specific intent standard and stating that
“[n]ot only does that lonely footnote [in Birbiglia] fail to
clearly state that specific intent must be alleged in order to
proceed with a claim of bad faith, this court has not been guided
to any other cases which so hold”).
-12-
intent dispute. Establishing a violation of the covenant of good
faith and fair dealing requires at least bad faith conduct. See
Schultz v. R.I. Hosp. Trust Nat’l Bank, N.A., 94 F.3d 721, 730 (1st
Cir. 1996); Equip. & Sys. for Indus. v. Northmeadows Constr. Co.,
798 N.E.2d 571, 575 (Mass. App. Ct. 2003); Shawmut Bank, N.A. v.
Wayman, 606 N.E.2d 925, 928 (Mass. App. Ct. 1993); see also FAMM
Steel, Inc. v. Sovereign Bank, 571 F.3d 93, 100 (1st Cir. 2009).
The district court correctly determined that there were
only two potential instances of alleged bad faith on PerkinElmer’s
part.4 Both instances concerned only the Purchase Agreement and
not the Employment Agreement——namely, PerkinElmer’s representations
regarding its intention to offer Bogen a better employment contract
and its failure to inform Sonoran and Donahue that its Lithography
Division was struggling financially. However, statements that are
made before a contract is executed are “inadequate” for a claim of
breach of the implied covenant of good faith and fair dealing.
Accusoft Corp. v. Palo, 237 F.3d 31, 45 (1st Cir. 2001) (“It is
implicit in [the definition of the implied covenant of good faith
and fair dealing] that the prohibition contained in the covenant
applies only to conduct during performance of the contract, not to
conduct occurring prior to the contract’s existence, such as
conduct affecting contract negotiations.” (citing FDIC v. LeBlanc,
4
We agree that the other alleged instances of bad faith
were properly rejected by the district court.
-13-
85 F.3d 815, 822 (1st Cir. 1996), and Restatement (Second) of
Contracts § 205, cmt. c)); see also Eigerman v. Putnam Invs., Inc.,
877 N.E.2d 1258, 1265 (Mass. 2007) (stating that the implied
covenant of good faith and fair dealing only “concerns the manner
in which existing contractual duties are performed”); Human Res.
Dev. Press, Inc. v. IKON Office Solutions Co., No. 05-30068-KPN 3,
2006 U.S. Dist. LEXIS 1613 at *26 (D. Mass. Jan. 12, 2006).
While the failure to make a new and better offer to Bogen
occurred after the execution of the Purchase Agreement, the alleged
bad faith conduct here was the representation during negotiations
that a post-execution offer would be made to Bogen. In other
words, the bad faith act occurred before, not after, execution of
the Purchase Agreement. The same is true with respect to the
representations as to the financial condition of the Lithography
Division.
Thus, the district court did not err in granting summary
judgment that PerkinElmer did not breach the implied covenants of
good faith and fair dealing.
C. Breach of the Implied Reasonable Efforts Term of the
Agreement
Sonoran next asserts that, under the Purchase Agreement,
PerkinElmer had an implied obligation to exert reasonable efforts
to develop and promote Sonoran’s technology, and that it breached
its obligation. PerkinElmer in turn argues Massachusetts does not
-14-
recognize such an implied obligation, at least not under the
circumstances involved here. We conclude that PerkinElmer did have
an implied obligation under the Purchase Agreement to use
reasonable efforts, and we reverse and remand for a determination
of whether PerkinElmer breached this obligation with respect to the
Purchase Agreement only.
Justice Cardozo’s opinion in Wood v. Lucy, Lady Duff-
Gordon, 118 N.E. 214 (N.Y. 1917), has influenced courts nationwide,
including Massachusetts courts, to follow the principle that:
We are not to suppose that one party was to be
placed at the mercy of the other. . . . [The]
promise to pay the defendant one-half of the
profits and revenues resulting from the
exclusive agency and to render accounts
monthly was a promise to use reasonable
efforts to bring profits and revenues into
existence.
Lady Duff, 118 N.E. at 215-16. Citing to Lady Duff, the
Massachusetts Supreme Judicial Court has held that it is implied
that one who obtains the exclusive right to manufacture a product
under a patent has “an implied obligation . . . to exert reasonable
efforts to promote sales of the process and to establish, if
reasonably possible, an extensive use of the invention.” Eno Sys.,
Inc. v. Eno, 41 N.E.2d 17, 19-20 (Mass. 1942).
PerkinElmer contends that implying a reasonable efforts
obligation is only necessary and appropriate where there is no
other consideration supporting the existence of a contract. Thus,
-15-
PerkinElmer seeks to limit the implied reasonable efforts
obligation to contracts in which there is no consideration other
than reasonable efforts. It points out that it paid $3.5 million
in consideration at closing, and concludes that the reasonable
efforts obligation does not apply here. While some jurisdictions
may have adopted this rule, see Emerson Radio Corp. v. Orion Sales,
Inc., 253 F.3d 159, 169 (3d Cir. 2001); WrestleReunion, LLC v. Live
Nation Television Holdings, Inc., No. 8:07-cv-2093-JDW-MAP, 2009
U.S. Dist. LEXIS 70285, at *26-27 (M.D. Fla. Aug. 11, 2009),
Massachusetts has not. In Eno, for example, Mrs. Eno entered into
an arrangement with a company to market a particular type of tape
useful in the manufacture of shoes. Eno, 41 N.E.2d at 18. Under
the license, Eno Systems was to pay Mrs. Eno $100 per month where
the sales of tape were below 250,000 yards, and $200 per month
where yardage exceeded that amount. Thus, even if Eno Systems had
done nothing to exploit the patent, Mrs. Eno would have been
entitled to $100 per month for the life of the patent. Despite
this consideration, the court implied a reasonable efforts clause
to maximize revenue based on the intent of the parties. Id. at 19.
PerkinElmer also attempts to distinguish Eno as limited
to exclusive licensing arrangements. PerkinElmer asserts that the
implied reasonable efforts duty is inapplicable here because it
“did not obtain an exclusive license but rather purchased Sonoran’s
assets.” The district court found this argument compelling. We do
-16-
not because Massachusetts law is to the contrary. The fact that
Eno involved exclusive licensing arrangements does not lessen the
obligation to use reasonable efforts in other situations. See,
e.g., Brightwater Paper Co. v. Monadnock Paper Mills, 161 F.2d
869, 871 (1st Cir. 1947) (holding that the plaintiff had an implied
duty to use reasonable efforts to elicit particular business and to
hand it over to the defendant); Russo v. Enter. Realty Co., 199
N.E.2d 689, 692-93 (Mass. 1964) (imposing a duty on a seller of
land to use reasonable efforts to build a road of the width shown
on its subdivision plan as part of its closing obligations);
Graustein v. HP Hood & Sons, Inc., 200 N.E. 14, 20 (Mass. 1936)
(implying a duty on a purchaser of a retail milk delivery company
to make “reasonably diligent and persistent effort to collect [on
seller’s behalf] all the accounts recorded in the books which it
took over”).5 Rather, the key under Massachusetts law is that the
instrument as a whole must make certain that the reasonable efforts
term was implicit. Eno, 41 N.E.2d at 19; see also Spaulding v.
Morse, 76 N.E.2d 137, 139 (Mass. 1947) (“[I]f the instrument as a
whole produces a conviction that a particular result was fixedly
desired although not expressed by formal words, that defect may be
5
See also Bell v. Streetwise Records, Ltd., 761 F.2d 67,
73, 75 (1st Cir. 1985) (finding that the employment contracts
between the plaintiffs, the members of a rock group, and the
defendants, a record company and a manager, were “‘instinct’ with
that obligation” and required each party to maximize the sale of
records and royalties).
-17-
supplied by implication and the underlying intention . . . may be
effectuated, provided it is sufficiently declared by the entire
instrument.” (citing Dittemore v. Dickey, 144 N.E. 57 (Mass.
1924))).
Here various aspects of the Purchase Agreement in
addition to the contingent nature of Sonoran’s compensation support
its argument that the reasonable efforts term was implicit. The
earnout compensation was substantial (potentially $3.5 million) in
relation to the up-front payments made by PerkinElmer ($3.5
million). A significant portion of the $3.5 million was paid to
Sonoran’s creditors and did not benefit the shareholders directly.6
The Purchase Agreement contemplated a campaign to market the
Sonoran technology over the next five years (although this does not
suggest that it would not be reasonable to abandon those efforts
before the end of the five-year period). There was no language in
the agreement negating an obligation by PerkinElmer to use
reasonable efforts or conferring absolute discretion on PerkinElmer
as to the operation of the business. Under these circumstances, we
find that PerkinElmer had an implied obligation to use reasonable
efforts to develop and promote Sonoran’s technology.
Given that PerkinElmer had an implied obligation to exert
6
Indeed Sonoran alleged that all of the $3.5 million was
paid to Sonoran’s creditors. Pls.’ Counter-Statement of Material
Facts ¶ 13.
-18-
reasonable efforts towards promoting sales of the CTP machines, the
factual question remains whether PerkinElmer breached this
obligation. On this question, as might be expected, the parties
have quite different views. Sonoran has alleged a number of ways
in which PerkinElmer potentially breached this obligation. In
addition to PerkinElmer’s failure to retain Bogen, Sonoran
criticizes PerkinElmer’s decision to assign Guy Antley, an in-house
salesperson with no publishing experience, to lead the CTP sales
efforts on a part-time basis. Sonoran contends that Antley was
incompetent and made little effort to learn or promote the CTP
Business. Sonoran further contends that PerkinElmer “backed out of
its commitment to allow Donahue to run the business . . . and
started to operate it on the cheap.” Pls.-Appellants’ Br. 12.
Sonoran offers the expert testimony of Paul Baier, who stated that
despite a viable market for the CTP product, there was “very little
or no commitment to this product” from PerkinElmer executives.
Finally, Sonoran points to PerkinElmer’s alleged mishandling of a
potential opportunity to sell a large number of CTP units to
MacDermid, Inc., a dominant supplier of equipment to newspaper
publishers, as typical of the operation of the business.
PerkinElmer, on the other hand, asserts that in 2003 and
2004 alone it invested (and lost) $2.5 million per year of its own
money in the venture and vigorously attempted to promote and sell
the Sonoran product. In PerkinElmer’s view, the lack of success
-19-
was attributable not to any lack of effort by PerkinElmer, but to
a lack of enthusiasm by prospective purchasers in investing in an
unproven technology and the well-known financial problems of the
newspaper industry.
PerkinElmer did not argue in its motion for summary
judgment that, if the reasonable efforts obligation applied, it was
entitled to summary judgment on the question of whether PerkinElmer
had in fact satisfied its reasonable efforts obligation. We
reverse and remand for the district court to determine whether
PerkinElmer breached this obligation with respect to the Purchase
Agreement——an issue to which we express no views.7 We recognize,
as did the district judge, that PerkinElmer made a substantial
investment in Sonoran and therefore had a substantial interest in
making the CTP Business succeed, and so it may not be easy for
Sonoran to show a lack of reasonable efforts. Whether on remand a
trial is required to determine whether PerkinElmer utilized
reasonable efforts is a matter for the district court to consider.
7
We note that in the complaint Donahue also argued that
the Employment Agreement should be construed to include a
reasonable efforts provision. That agreement presents a more
difficult issue with respect to an implied reasonable efforts
obligation. We need not, however, address this issue with respect
to the Employment Agreement since Donahue has not sufficiently
briefed the issue on appeal. See United States v. Zannino, 895
F.2d 1, 17 (1st Cir. 1990) (“It is not enough merely to mention a
possible argument in the most skeletal way, leaving the court to do
counsel’s work, create the ossature for the argument, and put flesh
on its bones.”).
-20-
Finally, we note that PerkinElmer may argue that the
grant of summary judgment can be upheld on the ground that the
district court found a lack of causation and insufficient proof of
damages. To the extent that PerkinElmer makes such an argument,
PerkinElmer is incorrect. The district court on summary judgment
only addressed causation and damages with respect to the claims
relating to the covenants of good faith and fair dealing and
PerkinElmer’s alleged bad faith, as PerkinElmer appears to
recognize at various places in its brief.8 Causation and damages
remain to be determined with respect to the reasonable efforts
claim if Sonoran is successful in establishing a breach of that
obligation. Again, whether on remand a trial is required to
determine causation and damages is a matter for the district court.
D. Violation of Chapter 93A
Finally, Sonoran asserts that PerkinElmer violated
Chapter 93A, Mass. Gen. Laws ch. 93A § 11. Chapter 93A creates a
cause of action for unfair or deceptive acts or practices. The
specific allegation here is that PerkinElmer violated Chapter 93A
by: (1) making “almost no effort to develop, market, and sell
Sonoran’s CTP products”; (2) “promising to amend the earnout and
other incentive payment clauses in the contract”; and (3)
8
Def.-Appellee’s Br. 45 (“The District Court held that
Sonoran’s implied covenant claim independently failed because of
Sonoran’s failure to offer evidence of causation.”).
-21-
misrepresenting its intention to “develop a strong marketing and
sales program” for the CTP Business through the end of 2003. In
considering PerkinElmer’s motion for summary judgment on this
claim, the district court noted: “[t]o the extent a party’s Chapter
93A claims are based only on failed common law or statutory
grounds, several courts have refused to find Chapter 93A
liability.” Sonoran, 590 F. Supp. 2d at 212 (citations omitted).
It then granted PerkinElmer judgment as a matter of law on the
claim because “the Plaintiffs [Chapter 93A] claims derive entirely
from the same set of operative facts as their failed common law
grounds.” Id. In addition, PerkinElmer sought summary judgment on
the alternative ground that the pertinent events did not occur
primarily and substantially in Massachusetts, as Chapter 93A
requires. We agree with PerkinElmer’s alternative argument and
need not reach the issue addressed by the district court.
Chapter 93A states that:
No action shall be brought or maintained under
this section unless the actions and
transactions constituting the alleged unfair
method of competition or the unfair or
deceptive act or practice occurred primarily
and substantially within the commonwealth.
Mass. Gen. Laws ch. 93A § 11 (emphasis added). Courts apply this
standard by considering the facts “in the context of the entire §
11 claim,” and then determining “whether the center of gravity of
-22-
the circumstances that give rise to the claim is primarily and
substantially within the Commonwealth.” Kuwaiti Danish Computer
Corp. v. Digital Equip. Co., 781 N.E.2d 787, 799 (Mass. 2003); see
also Kenda Corp. v. Pot O’Gold Money Leagues, Inc., 329 F.3d 216,
234-35 (1st Cir. 2003).
Sonoran contends that the alleged Chapter 93A violations
occurred primarily and substantially in Massachusetts because
“[i]n-house counsel and Perkin Corporate, based in Massachusetts,
were intertwined with California employees and had the final say.
Massachusetts was in control of the negotiations and made all of
the important decisions.” Pls.-Appellants’ Br. 46. Sonoran
further asserts that PerkinElmer’s failure to make Bogen a better
offer and disclose the Lithography Division’s financial
difficulties occurred through PerkinElmer Corporate, located in
Massachusetts. We do not think this is sufficient for
Massachusetts to be the “center of gravity.”
In Bushkin Assoc., Inc. v. Raytheon Co., 473 N.E.2d 662
(Mass. 1985), a New York investment banker sued a Massachusetts
corporation under Chapter 93A, alleging that deceptive statements
were made to him in the course of telephone calls between
Massachusetts and New York. The Supreme Judicial Court of
Massachusetts determined that the alleged unfair or deceptive
conduct did not occur primarily in Massachusetts because, despite
-23-
the fact that the allegedly deceptive phone calls were made from
Massachusetts, the telephone calls were received and acted upon in
New York and the plaintiffs’ losses were incurred in New York. Id.
at 672. As a result, the court rejected the Chapter 93A claim.
Id.
This case is similar to Bushkin. Just as the losses in
Bushkin did not occur in Massachusetts, Sonoran’s losses were
incurred in Arizona where Donahue and the CTP Business were
located. Sonoran also received and acted upon PerkinElmer’s
allegedly deceptive conduct in Arizona. Indeed this case is less
favorable to the plaintiffs than Bushkin. Unlike Bushkin, where
the allegedly deceptive statements were uttered in Massachusetts,
the alleged misconduct here occurred primarily in Arizona and
California where the Lithography and Optoelectronics Divisions were
located. The fact that the Purchase Agreement provided that
Massachusetts law would govern does not require a finding that the
center of gravity for Chapter 93A liability is in Massachusetts.
In Bushkin, the court determined that Massachusetts law controlled
(even without a clause explicitly providing so) but still found
that the alleged unfair or deceptive conduct did not occur
primarily and substantially in Massachusetts and thus that there
could be no Chapter 93A liability. Bushkin, 473 N.E.2d at 636,
638.
-24-
Thus, viewing the record in the light most favorable to
Sonoran, PerkinElmer was entitled to summary judgment on the
Chapter 93A claim as the alleged unfair or deceptive conduct of
PerkinElmer did not occur primarily and substantially in
Massachusetts.
III. CONCLUSION
For the reasons set forth above, we reverse the judgment
of the district court with regard to whether the Purchase Agreement
contains an implied contractual term requiring PerkinElmer to use
reasonable efforts to develop and sell Sonoran’s CTP technology,
and remand for further proceedings on that issue. The judgment of
the district court is in all other respects affirmed. Each party
shall bear its own costs.
Affirmed-in-part, reversed-in-part, and remanded.
-25-